The technology sector downturn has tempered LP demand for growth equity. Centana Growth Partners co-founder Ben Cukier tells us how the firm raised an oversubscribed $600 million fund in a tough market.
Growth equity fundraising for the first six months of 2024 fell to its lowest since 2018, accounting for $21.6 billion or 14 percent of capital raised. The downturn coincides with plummeting valuations in the technology sector, a major staple of growth equity.
Despite those headwinds, New York-based Centana managed to close its third fund in December 32 percent above its $455 million target.
Stellar returns, of course, contributed to its fundraising success. But also, staying focused narrowly on the always-evolving fintech and financial services sectors while resisting the temptation to move upmarket helped.
“A lot of funds have gotten dramatically bigger and moved to larger investment sizes,” Cukier says. “We’re doing the same type of investment in the same field that we’ve always done.”
Centana typically writes checks between $10 million to $50 million in founder-owned companies generating $7 million to $75 million in annual revenue. The companies are almost money-losing enterprises on the cusp of profitability.
In particular, Centana has invested in several online identification verification providers in a cybersecurity subsector undergoing rapid expansion and technological advancement.
Cukier says identification verification has expanded beyond verifying individuals to supply chain risk management, confirming and identifying every link to ensure no bad actors are hiding behind complex corporate structures.
“Banks care about that, large trading partners care about that, governments care about all of that,” Cukier says. “We’re spending a lot of time looking into the whole supply chain, identity side of things.”
The New York shop initially set a target of $455 million for its third fund after raising an oversubscribed $375 million in 2019.
Centana closed that second fund right before the Silicon Valley tech bubble reached its peak. With valuations skyrocketing, Centana didn’t make its first investment out of Fund II until the middle of 2021 after being outbid on several businesses.
Cukier says that time tested the firm’s resolve, but that the discipline is paying off today. The fund is not saddled with plummeting valuations.
“We had a lot of introspection, and we were asking ourselves, what are we missing in the market? Should we be leaning in more,” he says of the tech bubble era. “We were willing to loosen up a little bit, but, ultimately that long-term perspective helped.”
It also appears that the growth equity class as a whole may be rebounding.
Growth equity has been attracting attention from investors and fund managers alike, driven by the success of Summit Partners and two other early adopters of the investment strategy: General Atlantic and TA Associates.
Summit in October announced it closed Growth Equity Fund XII, with $9.5 billion in capital.
An LP poll conducted by KD Advisory shows growth capital investments topping the list of strategies investors plan to pursue in 2025.
Cukier, who spent nearly 16 years at FTV Capital, and Eric Byunn co-founded the New York shop in 2015 with a debut fund of $250 million.
“We did absolutely nothing new,” Cukier says of the firm’s latest fundraising effort. “We actually have the same strategy that we’ve been pursuing for almost 25 years now, both here and at our prior firm.”
